The estimated tax penalty can be waived for you, if your 2018 federal income tax withholding and estimated tax payments fall short of your total tax liability for the year; however, there is a catch: its is only waived, if you paid at least 85 percent of total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.
Typically, you must pay 90 percent to avoid a penalty.The waiver computation will be reflected in a revised Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and instructions.
How Does Tax Penalty Relief Come About?
The relief was intended to help taxpayers, like you, who were unable to properly adjust withholding and estimated tax payments to reflect changes under the Tax Cuts and Jobs Act (TCJA). Although most 2018 tax filers are still expected to get refunds, some will unexpectedly owe additional tax on their returns.
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018, usually resulting in greater take home amounts in paychecks.
What are the Chances I Still Incur a Tax Penalty for Underpayment?
However, the updated withholding tables were not able to fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments; i.e., a “Paycheck Checkup” to avoid a situation where they had too much or too little tax withheld when they file their tax returns.
Please call the office if you need assistance updating your withholding this year to make sure you are having the correct amount of tax withheld for 2019.